“We are just plagued today with the lack of long-term trends, and it’s because of people reacting to the issues of the day. You get long-term investors trying to anticipate what hedge funds are going to do—and not do— so they don’t get caught on the train tracks.”

-Jim Sarni, managing principal, Payden & Rygel.

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Today’s Ahead of the Tape column discusses the return of the correlation trade:

“Across financial markets, trading patterns more commonly seen in 2010 are returning. Stocks and the dollar are consistently moving in opposite directions, as are stocks and Treasury securities.

It is a trading pattern that was common for much of 2010 as investors swung in and out of markets en masse–buying “risk on” investments like stocks when they felt brave, and “risk off” assets such as Treasurys and the dollar when they wanted safety.

That pattern broke down earlier this year, in what some had seen as a return to normalcy. But the tensions in the Middle East and nuclear crisis in Japan have seen it return, frustrating investors who are seeking to trade on fundamental factors instead of headlines. The U.S. and coalition military strikes in Libya that began this weekend could become yet another flashpoint for worry.”

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

7 Responses to “Risk On/Risk Off Trade Returns”

So much for ‘investing science’ and the rarified knowledge of wall street pros who live at the top of lofty pedestals. All I read are a couple of ‘pros’ trying to figure out the best way to follow the herd and decide which herd to follow.

RE: “Stocks and the dollar are consistently moving in opposite directions…”

Although the falling U.S. Dollar appears to be “helping” the stock market, and few seem concerned about its drop, I believe that this declining U.S. Dollar is of great concern.

At current levels of around 75.5, the U.S. Dollar isn’t too far away from critical support levels, and the price action seems very weak.

For those interested, I have been writing about the vulnerability of the U.S. Dollar to a substantial decline and how such a decline would be very damaging to the U.S. economy and markets. Here is my latest post on the topic:

REALLY getting tired of this new (already worn out) catch phrase, “Risk On -Risk off.” Markets up for the day – “Risk On”, – Markets down for the day – “Risk off”. I guess EVERYBODY is a day trader now.

How about this (so we don’t have hear this nonsense everyday) – Equity markets above some arbitrary
moving average (100 day, 200 day – take your pick, it doesn’t matter) – risk is ON – below – risk is OFF. This phrase is almost as annoying as, “Booo – yaaa”

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About Barry Ritholtz

Ritholtz has been observing capital markets with a critical eye for 20 years. With a background in math & sciences and a law school degree, he is not your typical Wall St. persona. He left Law for Finance, working as a trader, researcher and strategist before graduating to asset managementRead More...

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